business cycles


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business cycles,

fluctuations in economic activity characterized by periods of rising and falling fiscal health. During a business cycle, an economy grows, reaches a peak, and then begins a downturn followed by a period of negative growth (a recession), that ends in a trough before the next upturn. The theory of business cycles is generally attributed to French physician Clement Juglar, who proposed in 1862 that such fluctuations were to be expected in any economic system. Other later theorists developed Juglar's theory, arriving at business cycles of anywhere from 10 years to the half-century cycle suggested by Russian economist Nikolai Kondratieff. Many attempts have been made to equalize business cycles through monetary and fiscal policy decisions. During the 1970s and 80s, for instance, U.S. fiscal policy deliberately created a recession to combat inflation. Theories on the causes of business cycles consider various possible factors; however, none has conclusively delineated the underlying causes for fluctuations. Such 20th-century theorists as John Maurice Clark and Joseph Schumpeter have attempted to find cures for economic instability, rather than describing it as simply a natural phenomenon in the manner of many 19th-century theorists. The "underconsumption" theory, for instance, claims that an inordinate amount of income goes to the wealthy rather than to investment, thus producing instability.

Bibliography

See R. J. Gordon, ed., The American Business Cycle (1986) and W. C. Mitchell, Business Cycles and Their Causes (1989); A. W. Mullineux, Business Cycles and Financial Crises (1990).

References in periodicals archive ?
In the present context, dramatic predictions should mostly be seen as a desperate grab for investor immortality, more often than not based on misunderstandings about the nature of the business cycle, the role of valuations in returns or poorly contextualised geopolitical threat assessments.
Considerable amount of research has been undertaken to study if and how business cycles between nations indulging in international trade and financial flows move in tandem with each other.
Another question to add to this problem will be to see if the business cycle phase has any impact on the behavioral biases and the pricing of M&A transaction.
A business-cycle theory does not need to explain all business cycles to be valid or useful.
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While the National Bureau of Economic Research's (NBER) Business Cycle Dating Committee of the United States is responsible for the official dating of peak and trough, their announcements often come with a long delay.
The welfare cost of business cycles is defined as the average welfare difference between two economies: one with and one without aggregate output fluctuations.
Strong growth of leading world economies caused economists to start to look at business cycles in the category of deviation from a long-run trend (deviation cycles) rather than recessions (Zarnowitz, 1985).
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Given the financial cycle's ugly climax, governments should shift their focus from smoothing business cycles to preventing excessive debt, counsels the BIS.
The chemical industry said it has been found to consistently lead the US economy's business cycle given its early position in the supply chain, and this barometer can be used to determine turning points and likely trends in the wider economy.
The use of performance goals, particularly relative measures, heightens the importance of ensuring that the peer companies' business cycles are reasonably aligned with the subject company.